In today’s volatile macroeconomic business and financial conditions the role of the debt manager is extensive and given the newer trends and challenges it is all the more difficult. Therefore, to manage such challenges in debt management it is essential that the debt manager has sound knowledge about the public policy, financial sector and also has the power to understand and analyze the economics in it.
Moreover, the economic environment is evolving at a fast rate and therefore capacity building efforts is required.
Understanding the Investors Are Necessary
The rigid employment conditions of the public sector further complicates the situation and settings. The debt manager has to understand the main challenges, priorities of the organization and the interests and objectives. The outlook of global debt changes with the issuance and therefore debt managers must know exactly which firms are investing and in what type of government debt. They must also know about the own investors to map out global demand from the pension funds and asset managers. Most importantly, they should know about the varying maturities and yields.
Proper Coordination of Monetary Policy
The debt managers require maintaining a perfect balance between debt management and monetary policy and therefore must have proper coordination. The benefits of such proper and close coordination are varied and it helps in avoiding tensions between them. Any unintended consequences like policy mix that is not consistent, market confusion on policy goals, competing auctions, competing securities are also avoided. Therefore, it needs to be well managedto prevent risks of jeopardizing transparency and independence of the central bank and the debt manager.
Avoid the Inevitable Areas of Conflict
Now the question is how such monetary policy and debt management techniques are coordinated to complement with each other? Care should be taken that the monetary policy does not become the objective of debt management and vice versa. Therefore, there has to be some key considerations so that structuring of such effective and beneficial working relationship between debt managers and the central bank can be done. The inevitable areas of conflict like the fixation of rates of interest and liquidity management must also be handled strategically.
The New Strategies and Instruments
Lots of new techniques, strategies and instruments are used by the debt manager to achieve the desired goal and maintain the desired level of coordination. It is their ability and skill to easily adapt to the new and rapidly changing economic environment that enables to bring such changes and effects. They understand the market sentiments and the uncertainty that remains high while the liquidity remains low. Demand for safeassets is on the rise and the exceptionally low rates of bonds have led to extraordinary market conditions. The debt managers have to adapt and design their funding plans according to the new environment.
Differentiation of Debt Issuance
The debt managers are now increasingly on the lookout for an active differentiation of debt issuanceinstruments. Such instruments include inflationlinked securities, sale of tranches in the benchmark issuance and ultra-long bonds. This has led to the innovations in debt management strategies and has helped in building a useful and an effective working condition and relationship. The debt quality is regarded as most definitive with their significant impact on the market participants.
However, the debt managers question the consistency and rationale of the sovereign ratings considering the three key areas. First, the criteria that underlies the sovereign ratings; second, the key aspects of fruitful collaboration with the DMO from the perspective of the organization and third, the challenges faced with rating agencies. To know more about such challenges you can check online.
Issuance of Choices
This is considered to be the most challenging aspect which needs a proper coordination and alignment with the broader aspect and objective of debt management. It is also required to take into account all the key factors that include risk appetite, volatility, maturity and much more. It is also required to compare and review the different issuing procedures that the debt managers have to use and may choose. It will cover the auctions as well as the less used issuance types like the syndications and also the non-competitive taps. The debt manager will consider different and typical trade-offs, consider the pros and cons of each and other auctioning procedures along with the designing of the auction schedule when making issuance decisions.
Tools for Risk Management
The debt manager also has to consider the tolls for risk management of the roll-over, its design and implementation and much more. This is required as any inability to roll over the debt during the periods when there is enough turbulence in the market can eventually threaten the reputation and the financing capability of the government as well.These tools used by the DMOs will enable the debt managers in assessing the roll-over risk and formulate strategic plans to achieve the targets. They will also know how to measure roll over risk and monitor it as well. This will lead in the limitation of debt with proper control and management.
Coordinating Between Cash and Debt Management
The debt managers explore all the options to coordinate between cash and debt management and also work with the treasuries to implement forecasting of the daily net cash flows into the government accounts. It will provide all necessary details so that they can ensure that these are accurate and timely as well. The DMO will balance and place thenet positions in a more cost effective manner and use all their knowledge of the debt market and its instruments for debt management and its risks. Such instruments will include repos and reverse repos, swaps instruments along with more traditional government securities.
The Debt Management Toolkit
Therefore, a liquid bond market plays the significant role in the development and support of the market. It must have developed infrastructure along with reliance on one industry. The contribution of the debt managers in the different stages of market development in this regard and aspect cannot be overlooked.
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